New regulatory analysis highlights money-mule accounts, bank liabilities, and fraud compensation rules

Recent regulatory analyses focus on the proliferation of money-mule accounts, Unified Payments Interface (UPI) fraud vulnerabilities, and structured victim compensation processes. The framework integrates strict Prevention of Money Laundering Act (PMLA) mandates, Reserve Bank of India (RBI) Know Your Customer (KYC) guidelines, enhanced bank due diligence standards, shared institutional liability, and time-bound victim compensation protocols. Money-mule accounts refer to bank accounts used by intermediaries to transfer illegally acquired funds on behalf of fraudsters, exploiting gaps in financial surveillance.

Historically, financial institutions faced limited accountability for fraudulent transactions passing through inadequately verified accounts, leaving victims with prolonged recovery timelines. The updated approach introduces criminalisation measures, rigorous bank due diligence obligations, and structured liability sharing to protect end-users and deter illicit transfers. Compliance officers and risk management teams must audit existing onboarding procedures and strengthen Know Your Customer verification protocols to prevent mule account creation.

Financial institutions should review their grievance redressal mechanisms to ensure compliance with time-bound victim compensation mandates. Monitor upcoming RBI circulars regarding digital payment security, and advise clients on immediate reporting channels when encountering suspected Unified Payments Interface fraud.